ČNB k určení výše kapitálu samosprávných investičních fondů

The CNB has modified the rules for determining the amount of capital of self-managed investment funds

The Czech National Bank has amended Decree No. 244/2013 Coll., on further regulation of certain rules of the Investment Companies and Investment Funds Act[1].

With effect from 1 August 2022, pursuant to Section 48(2) thereof, only the items and deductions referred to in Section 47 that do not relate to the investment activities of the self-managed investment fund or sub-funds created by it shall be used in determining the amount of the capital of the self-managed investment fund.

Therefore, in determining the amount of the capital of a self-managed investment fund, the following shall now apply:

• A SICAV that creates a sub-fund (Section 165 of the ICIIF) cannot now include components relating to the sub-fund,
• a SICAV that does not create a sub-fund Section 164 of the ICIIF) cannot newly include components relating to the investment part,
• In the case of a SICAF (closed-end joint stock company), the items and deductions cannot relate to the investment activity. The rule itself and the methodology for its application are quite unclear because this type of fund does not distinguish between assets and debts from its investment activities.

The Decree does not contain a transitional provision and therefore technically the minimum amount of capital of a self-managed investment fund must be at least EUR 300,000 taking into account the new rules as of 1 August 2022.

In the explanatory memorandum, the Czech National Bank states that the previous inclusion of Other Equity Funds representing the fund capital of the investment part did not make sense because the assets and capital of the founder part and the investment part (or sub-funds) have a separate purpose and separate property and accounting regime. Therefore, according to the CNB, the regulatory capital within the meaning of Sections 30 to 32 of the ICAIF should be placed only in the constituent part of self-managed investment funds forming sub-funds (or self-managed investment funds with investment and non-investment parts).

In our view, the introduction of the new rule may be perceived as somewhat controversial from a regulatory, commercial and timing perspective. The change affects nearly 30 self-managed funds, 5 of which are closed-end funds.

The object of a self-managed investment fund is only to manage the fund's own assets. Therefore, EU law imposes on self-managed funds only an initial capital requirement (cf. Art. 9 (1) AIFMD and Art. 29 (1) UCITS) and a liability risk coverage requirement[2]. Investment portfolios are included in the initial capital[3].

The requirement for a so-called "going concern capital" based on AuM and ¼ of the fixed overheads as defined in CRD directive, is only required by those directives for management companies (i.e. those managers that do not manage their own assets but portfolios of external AIFs), with a required level of initial capital of EUR 125,000 (cf. Art. 9 (5) AIFMD is linked to Art. 9 (3) AIFMD). For a more detailed interpretation of this rule, see, for example, the EY Luxembourg Technical Guide "Investment funds in Luxembourg" in section 6.2.C. (page 180) and section 2.5 (page 47) Investment Funds in Luxembourg - EY Luxembourg | EY Luxembourg.

Czech legislation was, prior to 1 August 2022, already stricter for self-managed funds in terms of the amount of capital than required by European law, requiring the fulfilment of the so-called CRD of ongoing capital (Art. 30(1) of the ICIF). In addition to EU law, the ICIIF contains a minimum fund capital requirement of EUR 1.25 million for collective investment funds (Art. 208 CISIF) and EUR 1.25 and 1.0 million respectively for qualified investor funds, regardless of whether they are managed investment funds or self-managed investment funds.  In our view, the amendment to the Decree rather deepens this stringency.

We are further elaborating on the impact of this measure and are ready to guide you through the new situation. If you have any questions, please contact the authors of this article or the EY consultancy team you usually work with.

Authors:

Alena Šebestová

Radek Matuštík

Lenka Bízová

References:

[1] The amendment is contained in Decree 184/2022 Coll., published in the Collection of Laws on 30.6.2022

[2] This approach applies in Ireland and Luxembourg. The UK has historically assumed that only the initial capital requirement would apply to self-managed funds.

[3] For example, the Central Bank of Ireland in response to ID 1067 AIFMD/QA.